2019/12/20 by Aymeric Vié, Alfredo J. Morales, Vié, Aymeric +1
Economics, Econometrics and Finance · Environmental Science · Physics and Astronomy · #Complex Systems and Time Series Analysis #Economic and Technological Innovation #Ecosystem dynamics and resilience #FOS: Economics and business #FOS: Physical sciences #General Finance (q-fin.GN) #Physics and Society (physics.soc-ph) #physics.soc-ph #q-fin.GN
paper · pdf · doi:10.48550/arxiv.1912.09814
arxiv created 2019/12/20 · openalex publication_date 2019/12/20 · arxiv updated 2019/12/23 · openalex created_date 2022/07/26 · openalex updated_date 2026/07/28
Economic interdependencies have become increasingly present in globalized production, financial and trade systems. While establishing interdependencies among economic agents is crucial for the production of complex products, they may also increase systemic risks due to failure propagation. It is crucial to identify how network connectivity impacts both the emergent production and risk of collapse of economic systems. In this paper we propose a model to study the effects of network structure on the behavior of economic systems by varying the density and centralization of connections among agents. The complexity of production increases with connectivity given the combinatorial explosion of parts and products. Emergent systemic risks arise when interconnections increase vulnerabilities. Our results suggest a universal description of economic collapse given in the emergence of tipping points and phase transitions in the relationship between network structure and risk of individual failure. This relationship seems to follow a sigmoidal form in the case of increasingly denser or centralized networks. The model sheds new light on the relevance of policies for the growth of economic complexity, and highlights the trade-off between increasing the potential production of the system and its robustness to collapse. We discuss the policy implications of intervening in the organization of interconnections and system features, and stress how different network structures and node characteristics suggest different directions in order to promote complex and robust economic systems.